A Virtual Company: the Pros and Cons

Virtual companies (VCs) have little or no tangible presence outside of the internet. They could rightfully and insightfully be called businesses without walls. The possibilities for a VC are limitless and only bound by the limits the owner/entrepreneur puts on them. All business is conducted electronically. No need for high rents and overhead costs or buildings in which to operate their businesses. It is also important to note that virtual companies are generally service or sales oriented and are goal driven. The focus is solely on what the business has marketed and intends to provide and the ability to outsource things not directly related to those services is much easier.

For example, a virtual administrative assistant whose task is to produce 30 copies of a presentation can be accomplished electronically by sending the file to the printing company via email and having the presentations ready for pick up and customer shipping all in the same day without the hassle of having to take a trip to the printer twice. In today’s busy world, coupled with the economic downturn, VCs have made it easier for businesses to get some of the services they need, i.e. secretaries, administrative assistants, bookkeepers and accountants, sales staff and even lawyers, without the overhead they would experience if they had to hire someone and provide a base salary along with benefits.

Virtual businesses offer owners the infrastructure of a regular business without the actual infrastructure! VCs are becoming increasingly popular for a number of different reasons and one of the reasons is that a virtual company removes the headache of finding a location for the business and a building in which to conduct the business. The overhead costs associated with the task of finding suitable space in which to operate, equip and insure the business can often times put a company in the red before it actually opens the doors for business.

The costs associated with a virtual company are minimal in comparison. Those costs include only the equipment that the business needs to initially get started and to operate, i.e. laptop/computer, printer, fax machine, telephone, desk and chair, paper supplies such as copy paper and notepads, and pencils. With these things, the virtual business will be up and running without the heavy duty costs associated with a physical

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location. It is much cheaper to open a virtual business but there are still responsibilities that must be undertaken and accomplished to ensure that the business is viable.

Company Compliance There are some basic guidelines in forming any business and to some degree, the same holds true for a VC. For the purpose of this paper, we can explore some of the basic rules for a home based business because in essence, that is what the foundation of a virtual company is most like. One of the first things that should be investigated is zoning laws in the area where the virtual company/home based business will be conducted.

Zoning regulations are designed to address compatibility concerns that arise when a mixture of commercial, industrial, and residential uses are located together. Zoning regulations can regulate types of uses, architectural aesthetics, and landscape and buffering of developments. With a VC, all of these things are taken into consideration as they would be if the business was being started in an actual building.

Based on the services provided, there are things to consider such as signs, traffic, etc. Secondly, the issue of taxation must be addressed. Regardless of whether the virtual company is going to expand beyond one employee or not, the business still needs to be recognized by the IRS. Hence, an FEIN, or tax ID number needs to be obtained. If there are plans for the VC to employ more than one employee, an EIN or Employer ID Number also needs to be obtained. There is no getting around the IRS…this is a must do in order for the VC to be in compliance with applicable taxation laws. There are other laws that govern a virtual company and those laws encompass morals and ethics.

There is an implied expectation of integrity when dealing with a VC the same as there would be if you were walking into Best Buy, Target or Bank of America. Some of these laws include advertising laws. Simply put, a virtual business should only market what it is actually capable of providing. The marketing and advertising of the services or products should be truthful and to be substantiated at any given time. In an effort to protect consumers, all businesses – even VCs, have to comply with laws that govern marketing and advertising.

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Despite the fact that a virtual company is governed by doing business electronically and a business owner and consumer may never meet face-to-face, enforcement of the marketing and advertising laws still apply. There are also federal and state labor laws that a virtual company must observe. Basically, the business may be conducted in “cyber space” but if there are employees, acting as agents for the company, and conducting business, applicable employee laws must apply.

For a virtual company that has a home base in Florida, Florida state employee labor laws would apply to any employees living and working in the state of Florida but for those employees living in a different state but working for a VC based in Florida, the employees home state employee laws are applicable. This makes things a little more complicated for a virtual business if it expands beyond the boundaries of its home base.

Considering the Profits Conducting business in a virtual capacity opens the “doors” of the business to a host of potential customers with arms as far as the virtual company chooses to stretch them. It also may expose the business to legal and financial liabilities as well. In the areas of privacy, security, copyright and taxation, the laws to protect both the company and the consumer should be adhered to in the event of a lawsuit or other type of litigation. Before a virtual business is opened, it is a good idea for the owner(s) to have identified, through a sound business plan, what the expectations are for turning a profit and reaping the benefits as a business owner.

The rewards can be great but the discipline and commitment required to make the business become profitable can be overwhelming. Through a business plan, a VC owner can identify ways in which s/he will market the business and the services it will provide. The business plan should identify “low hanging fruit” as a means of establishing an initial customer base, a track record for the business’ practices and performance, and an opportunity to gain a working knowledge of the demands and projected outcome measures of the business. Profits are based on the market requiring the services the VC provides, the quality of the services given, the level of commitment of the VC owner and the reputation the company makes for itself.

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Organizational Considerations Considerations should be made early on in the decision making process for which type of business form is best for the VC. In the United States, people can assemble via the internet (online) and enter into an agreement to work together, electronically, for the purpose of turning a profit. This can be done without formally forming a corporation. However, a VC as an S Corporation or an LLC may be required to maintain a registered agent with a tangible address where the business will be started and considered as the place where it will operate but without the other owners/principles ever actually being in the physical company of the others.

This depends upon the initial idea, proposed operating structure and whether or not is the idea of a lone person or a collaborative effort of two or more persons. As a lone person, a Sole Proprietorship would be the ideal way obviously. This would certainly ensure that the owner received all of the profits of the business and the fact that this is the least expensive way to start a business makes it ideal. Sole Proprietorship gives the VC owner total autonomy in every aspect of the business but also makes the owner totally responsible. As a VC business owner, the risks and financial responsibility are not nearly as exorbitant as they are for a regular business.

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References

Roger LeRoy Miller. & William Eric Hollowell. (2011). Business Law Text & Exercises. (6th ed., pp.383-416). Mason, OH: South-Western Cengage Learning. (2004). Starting a Virtual Assistant Business. Entrepreneur. Retrieved 02/28/2012 from http://www.entrepreneur.com. www.leeclerk.org www.sba.gov (2012). Starting a Business. Entrepreneur. Retrieved 02/29/2012 from http://www.sba.gov/category/navigationstructure/s starting-managing-business/starting-business. www.sunbiz.org www.dol.gov (2012). Help Navigating DOL Laws. United States Department of Labor. Retrieved 02/29/2012 from http://www.dol.gov/compliance/audience/smallbus.ht m.